ICYMI – New study shows tax increases on carried interest would reduce investment and cause job losses

Today, University of Southern California Marshall School of Business Professor Charles Swenson released a new study examining how a proposed 98 percent tax increase on carried interest capital gains would result in millions of lost jobs, billions in lost tax revenue, and would limit returns for U.S. public pension funds. Key takeaways from the report include:

  • Eliminating carried interest would result in the loss of over 4.9 million jobs, which is more than 3 percent of the country’s workforce.
  • Reduction in federal, state, and local tax revenues by $96 billion per year over the long run.
  • Public pension funds may lose up to $3 billion annually, forcing state governments to make up the shortfalls.

Read about the new report from both POLITICO’s Morning Tax newsletter and a press release from the U.S. Chamber of Commerce below:

Morning Tax: The Capital Gains Story
By Bernie Becker
September 7, 2021

The U.S. Chamber of Commerce, one of those business groups mobilizing against the Democrats’ proposed tax increases, is out with a new study this morning that aims to show the harms of taking away the preferential treatment of carried interest.

Carried interest has been talked about as an easy revenue-raiser for quite some time — even former President Donald Trump blasted the idea that an investment manager’s share of profits would get taxed as capital gains, though Republicans made only modest changes to carried interest in the Tax Cuts and Jobs Act.

The basic takeaway from the new Chamber study: Increasing taxes on private equity, venture capital and real estate partnerships through ending the break for carried interest wouldn’t just hurt investors — it would also decrease net tax collections (by around $96 billion a year for federal, state and local governments) and cut close to 5 million jobs over five years.

Case in point: The Chamber’s Tom Quaadman noted that Moderna used private equity and venture-capital funding for research on its Covid-19 vaccine.

New U.S. Chamber Study Shows Proposed Carried Interest Tax Increase Would Reduce Investment, Cause Widespread Job Loss, and Decrease Tax Revenue
U.S. Chamber of Commerce Center for Capital Markets Competitiveness
Press Release
September 7, 2021

The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness today released a report detailing how a proposed 98% tax increase on carried interest capital gains would reduce investment, lead to widespread job losses, and decrease tax revenues at the local, state, and federal levels.

The report, “Impact on Jobs, Tax Revenue, and Economic Growth of Proposed Tax Increase on Carried Interest,” estimates that, if enacted, the proposed increase in carried interest taxes would result in:

  • Job losses. Estimated loss of 4.9 million jobs within five years across the United States;
  • Declining tax revenues. Combined federal, state, and local governments’ annual net revenue losses could total $96 billion (revenues used to fund other programs) by year five; and, 
  • Lost retirement earnings. In particular, pension funds would lose up to $3 billion annually (a loss to pension fund retirees, which may force state and local governments to make up such shortfalls).

Private equity, venture capital, real estate partnerships, and their portfolio companies, which account for over 25 million American jobs and provide an annual estimated combined federal, state, and local tax revenues of over $493 billion, would be directly hit by the tax increase. The impact, however, would be broadly felt across the economy because of the chilling effect it will have on investment activity.

“New carried interest taxes would harm the innovators who are leading America out of the pandemic and the main street businesses that are fueling the economic recovery,” said Tom Quaadman, Executive Vice President of the U.S. Chamber Center for Capital Markets Competitiveness. “Moderna, for example, was able to tap private equity and venture-capital funding to conduct the research that led to the Covid-19 vaccine. Similarly, private equity funding provided a lifeline to thousands of American businesses and real estate partnerships that are crucial for new home construction and affordable housing. Almost doubling certain taxes on private equity and venture capital investments will restrict access to capital, harming job creation and innovation.”

Imposing a new tax increase on carried interest is just one of the dozens of reasons the U.S. Chamber of Commerce opposes the $3.5 trillion tax and spend budget reconciliation.